Longfellow, the early-19th-century American poet, was obviously not
referring to the current Japanese prime minister, Shinzo Abe, but he could
have been. What Abe calls his “three-arrows” economic-regeneration plan is a
shot in the dark in a country generally not inclined to risk-taking. The
first arrow, aggressive monetary easing, is designed to slay the dragon of
deflation. The second, a one-time dose of fiscal stimulus, is intended to
jump- start economic growth after more than two decades of stagnation. The
third, a mix of structural reforms, is designed to boost productive
efficiency, attract investment and render faster growth sustainable.

It remains to be seen whether Abe’s arrows will follow the trajectory he
anticipates. On the first, the chattering classes seem evenly divided
between those who doubt the Bank of Japan will succeed in ending deflation
and those who fear that the inflation produced by monetary easing will
spiral out of control. On the second, some wonder whether fiscal stimulus
is, in fact, gilding the lily, warning that additional deficit spending by
an already heavily indebted Japanese government could provoke a crisis of
confidence.

Views are less divided when it comes to the third arrow, comprehensive
structural reform. Here observers are all but unanimous in their approval –
but question whether the weapon will even get off the ground. ...[continue
reading]...

Longfellow, the early-19th-century American poet, was obviously not
referring to the current Japanese prime minister, Shinzo Abe, but he could
have been. What Abe calls his “three-arrows” economic-regeneration plan is a
shot in the dark in a country generally not inclined to risk-taking. The
first arrow, aggressive monetary easing, is designed to slay the dragon of
deflation. The second, a one-time dose of fiscal stimulus, is intended to
jump- start economic growth after more than two decades of stagnation. The
third, a mix of structural reforms, is designed to boost productive
efficiency, attract investment and render faster growth sustainable.

It remains to be seen whether Abe’s arrows will follow the trajectory he
anticipates. On the first, the chattering classes seem evenly divided
between those who doubt the Bank of Japan will succeed in ending deflation
and those who fear that the inflation produced by monetary easing will
spiral out of control. On the second, some wonder whether fiscal stimulus
is, in fact, gilding the lily, warning that additional deficit spending by
an already heavily indebted Japanese government could provoke a crisis of
confidence.

Views are less divided when it comes to the third arrow, comprehensive
structural reform. Here observers are all but unanimous in their approval –
but question whether the weapon will even get off the ground. ...[continue
reading]...